I'm the Detroit bureau chief for Forbes, which means I spend most of my time covering the automotive industry. But I also keep an eye on the rest of America's heartland—where stuff is manufactured and grown. I've been on the auto beat for more than 20 years at Forbes, Business Week and the Detroit Free Press. At the Boston Globe, I rode the tech bubble for a while, but I found there's nothing quite as fun as the auto beat. Whether you drive a car or not, everyone has an opinion about cars or car companies. What's yours?

This is the story of what happens when you gamble—and lose. When you get reasonable advice—and ignore it. And when one smallish decision cascades into a bet-the-company one.

In 2001 Dan Ustian, then head of Navistar International’s diesel engine unit, faced a slew of new air quality regulations from the Environmental Protection Agency. More stringent engine standards were already set to take effect three years hence, and the EPA was now requiring at least a 90% reduction in the amount of nitrogen oxides and soot emanating from diesel engines. Even diesel fuel itself was being reformulated to cut down on its sulfur content.

The new rules meant that Navistar, as well as rivals like Volvo, Mack, Freightliner, Paccar and Cummins, would have to redesign all their engines for American roads, using technologies that were less than perfect or inventing new ones. EPA estimated the cost of compliance, including the new fuel, would be substantial: $4.2 billion. But engine makers would have plenty of time to adapt. The new standards wouldn’t even begin to be phased in until 2007, with full implementation slated for 2010.

Ustian had several engineering paths available, including the use of nitrogen oxide adsorbers (“traps”) or a chemical treatment system called selective catalytic reduction, which European rivals favored. But neither was yet capable of achieving the eventual EPA requirements—they’d need further engineering development.

Ustian, then in his early 50s, was Navistar’s rising star—a professional manager, rather than an engineer, he would soon be promoted to president and then chief executive. Rather than following rivals with SCR, he decided, fatefully, to go with his gut. He figured truckers didn’t want to bother with an extra tank of fluid aftertreatment, so Ustian staked $700 million—and the fate of the company—on further advancing an existing diesel engine technology called exhaust gas recirculation (EGR). Rather than eliminate nitrogen oxide via a bulky chemical treatment system that even the EPA questioned initially, EGR would make the motor do all the work by piping exhaust gas back into the cylinders and burning it again—a cleaner, cheaper, lower-maintenance solution, which would set Navistar ahead of the pack. “Our ability to achieve our goals without adding customer cost and inconvenience is a competitive advantage,” Ustian told investors in late 2007.

All his engineers would have to do is perfect it.

That decision is now proving catastrophic. As the project developed and 2007 turned into 2008 and 2009 it became increasingly obvious—to everyone but the CEO, says one former manager who was close to Ustian—that Navistar had done worse than pick the diesel version of Betamax when the rest of the world was going to VHS. It simply couldn’t get its engines to work as hoped. “Dan is telling his technical people, ‘You’ve got to deliver,’ and they’re saying, ‘We don’t know how, but we’ll try,’” says the former executive. “There was a lot of tension in the technical community, from the scientists on up to the managers, about whether we should be agreeing to something we don’t know how to do. Dan didn’t want to hear any of it. ‘You’re going to get it done.’ He’s a positive thinker. He doesn’t like negative thinking.”

Now, two and a half years past the deadline for compliance, Navistar’s engine still isn’t clean enough to pass the EPA’s emissions test. On July 6, after an appeals court rejected an EPA compromise that allowed Navistar to keep selling its noncompliant engines with offsetting penalties, Ustian made an about-face, reluctantly embracing the very technology he had spurned for years.

The strategy reversal was more than just an embarrassment to Ustian, who spent years deriding his competitors’ approach, even suing the EPA and pushing for a recall of their engines (neither of which was successful). It could also mean the collapse of the company.

Its pretax loss in the first half of 2012 was $516 million on revenues of $6.4 billion as new truck sales stalled out and quality problems on its earlier engines required Navistar to boost its warranty reserves by $227 million. More alarming, perhaps, future orders plummeted 40% in the second quarter, making promised market share gains highly unlikely. Navistar shares have been punished, down more than 50% in the last 12 months. The Illinois-based company, which did more than $14 billion in sales last year, now has a market cap of around $1.6 billion.

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An EGR system works by cycling exhaust gas into the engine, thereby dampening the ability of the engine to operate at high rpm…the purpose is to make the engine run cool enough that it doesn’t burn ambient nitrogen to form nitrogen oxides. I feel for the engineers who are trying to make this work well enough to meet EPA standards, given the temps at which Diesels operate.

This is the same clown that duped DuPage County politicians and the mayor of Lisle into giving him millions of taxpayer dollars to move their headquarters down the street. He promised hundreds of new jobs — now the reality is clear — when Icahn or someone else takes over, the jobs that NAV had in DuPage County before they moved to Lisle will all go out of state. And he’s not alone in laughing all the way to the bank. They have a glorified janitor (“facilities manager”) who just bought a million dollar home in Lisle and has another huge “summer home” in Michigan — guess when you can get millions from the public trough without contributing a scintilla of value, the best thing to do is take the money and run.

Ustian made the same mistake that Obama is making with regard to energy – letting his strong desire for viable alternatives to oil cloud his judgement, making him bet the ranch on alternatives which are simply never going to be feasible. Forty years ago I got my wake-up call during a technical discussion in which I was strongly advocating solar energy. A far wiser researcher listened to my passionate arguments, then pointed out that after nearly fifty years of intensive R&D, the best solar cells in existence couldn’t generate as much power over their entire useful lifetime to equal the amount of energy required to make them. I was stunned, because no one had ever revealed that stunning truth to me before. In the decades since, solar cells have at least gotten past the payback point, but after the better part of a century, there is little reason – other than passionate/desperate hope – that solar will ever provide a viable alternative to oil.

The only real alternative is to drastically curtail energy consumption, with the associated reduction in all our standards of living. Instead, we have political leaders who, like Ustian, prefer to mislead the public into relying on technologists to pull an impossible rabbit from the hat. Science isn’t magic, and we need to start appreciating the limitations of blind hope.

This analogy is really a stretch. It may be “clear” to you what the status of our President’s energy policies are – but it is not clear to me. The role of the government is to encourage risky technologies with high payback but without corporate backing because of the risk and the long time frame. That is clearly unrelated to what is happening at Navistar.

Many good, intelligent people work for Navistar, but their ideas are drowned by a significant and influential layer yes-man, mostly Ford cast-offs who couldn’t make it through Ford’s workforce reductions. These guys manage down by yelling and instilling fear, and manage up kissing a$$. As a former manager, below this yes-men layer, I was expected to treat my superiors like they treated theirs. It didn’t work out for me there. I learned a lot about how not to treat people in a professional environment.

The Company’s struggles are a direct result of its miserable culture where good ideas are killed by people only worried about doing exactly what their boss says.

Many good, intelligent people work for Navistar, but their ideas are drowned by a significant and influential layer yes-men, mostly Ford cast-offs who couldn’t make it through Ford’s workforce reductions. These guys manage down by yelling and instilling fear, and manage up kissing a$$. As a former manager, below this yes-men layer, I was expected to treat my superiors like they treated theirs. It didn’t work out for me there. I learned a lot about how not to treat people in a professional environment.

The Company’s struggles are a direct result of its miserable culture where good ideas are killed by people only worried about doing exactly what their boss says.

Actually, the EPA is who let them run non-complaint engines all of 2010, 2011 and almost half of 2012, while all other Truck/Engine manufacturers were compliant at a huge R&D cost .The EPA’s ruling was overturned by the Supreme Court due to lawsuit from a couple of truck/engine manufacturers that paid for the technology advancements, Navistar just thought they could continue to operate with very small fines and keep saying ” we’re getting closer”

As far as the good- 50+ complaint vehicles put out the same emissions that 1 – 1985 Class 8 vehicle did. So it is significant reduction in green house gases. This is to big truck manufacturers what the catalytic converter was to the car manufacturers in the 80′s. Costly but necessary

It is a catastrophe for Navistar. For some more background, you could go to my blog www.stevesturgess.com and read the two stories “Told You So” and “Deeper Into The Woods.” As a truck industry watcher for over 30 years I predicted exactly how all this would fall out. Steve Sturgess